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The Business Process Behind Groupon

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Business process improvement is sometimes done by trying to make huge changes in the behavior of the market. Today’s guest post by Christopher Wallace discusses the business process behind Groupon—and makes some recommendations.

Lets face it — the ‘daily deal’ has changed the way consumers use coupons. The advent of the Internet bulk coupon deals sent consumers and businesses chomping at the bit to take advantage of this new and effective form of direct Internet marketing. Within months, Groupon had a host of similar competitors, including LivingSocial. Only a couple of years later, the entire industry is seeing a large decline in sales. See a Bloomberg Report on Groupon’s falling stock.

The concept for most email coupons is similar — businesses get to advertise though a new channel: massive email lists that have assimilated hundreds of thousands of ‘bargain hunters’ in a local market. Your business must cut a generous deal to get featured (usually at least 50% off a product or service), and deal hungry consumers buy your coupon in force. After your deal period (usually two or three days), Groupon sends you a check for all coupons sold, minus their 40% profit share margin.

The Groupon model hit the United States at just the right time. As the economy took a turn for the worse, many businesses jumped on the internet coupon bandwagon to stimulate sales in down times and bring in new customers from far-away markets. Does it work? Yes. Is it fair to businesses? Well, let’s discuss that.

A big factor for businesses considering the daily deal model is cash. Because Groupon handles all coupon sales (essentially your money), once your deal is over, you get paid. Quickly.

That can be a huge help for a struggling business. However all those $20 for $40 half price coupons, minus 40%, taxes and fees ultimately sends the business around $11 for $40 worth of product or services. If you feel like this is a huge gouge by Groupon, you are not alone.

consulting on groupon

© Flickr user diloz

The issue for so many businesses who want to take advantage of the Internet coupon model is profit share. How could a restaurant afford to give away $40 worth of food for $11, to a clientele that (lets be honest) only came out of the woodwork to take advantage of an unusually hefty discount. For some businesses, especially service focused models (gyms, fitness, recreation) with low overhead costs and ’empty spots’ that need to be filled, this model can work great. Other businesses, such as restaurants, retailers, and product purveyors with real material costs and overhead are literally -breaking even, or in some cases losing money to these coupons.

As this reality becomes apparent, businesses are hyperaware of the heavy handed tax levied on them using this model, and looking for other, less gratuitous ways to market, without having to pay 40% to the Groupon cartel.

  • Email Customers Directly. Groupon has a huge email database. You can too. Personally market to existing customers by collecting email addresses and sending out periodic email blasts, even if only to say ‘thanks for your business.’ The sky is the limit with email marketing. You can create coupons on YOUR terms, and design them directly for your clientele. Create ‘valued customer’ programs, or even stimulate a slow weekday with a last minute sale. Email providers such as Constant Contact or YMLP can even personalize email headers with a client’s name.
  • Text Them a Deal. Cell phones are where the action is in 2012. For retailers and the food and beverage industry, text message blasts are THE way to deliver coupons DIRECTLY to your customers. Nearly one in five smart phone users have used text coupons, and mobile coupon use rose 117% in 2011. Check out this report from TaTango.com. You can offer free products with a small purchase, or offer cash or a percentage off with a certain purchase amount.
  • New Web based coupon models. By handling so much revenue, Groupon has essentially morphed into a huge e-commerce operation, thanks to your client’s money! New models of Internet coupons are trying to bypass the ‘middle-man’ all together and instituting smaller profit share margins or a marginal, one-time fee per coupon. New models like InTownDiscounts.com only charge consumers $1 to buy a coupon, and allow business to handle the cash transaction directly with customers. The name of the game in 2012: Keep the middle man out of it!

By taking direct marketing into your own hands, you are not only empowering your business, you are building brand recognition and local enthusiasm through direct correspondence with your customers. It will take time and diligence to establish your customer database, but will ultimately be worth it in the end. Email is free, Internet marketing is available to everyone, and frankly, a personalized email or weekly text blast to your customers will make a much stronger impression than “Groupon the Cat” and his gold bling ever has.

Christopher Wallace is Vice President of Sales and Marketing for Amsterdam Printing, one of the nation’s largest providers of promotional products for businesses large and small. Amsterdam specializes in custom pens and other promotional items such as calendars, laptop bags, and T-shirts. Christopher regularly contributes to Promo & Marketing Wall blog.

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